Charles Roth is global markets editor for Thornburg Investment Management. Prior to joining Thornburg in 2013, Charles was an assistant managing editor at Dow Jones Newswires, the Wall Street Journal’s real-time financial news and analysis division, where he oversaw its bureaus in Latin America as well as the New York–based emerging markets group. He had previously served as a senior writer in the emerging markets group, bureau chief in Venezuela, and staff reporter in Malaysia.

Charles earned BA degrees from the University of Colorado at Boulder and an MA from the Instituto Universitario de Desarrollo y Cooperación at the Universidad Complutense in Madrid, Spain. He was a Peace Corps volunteer in Mali.

In this Q&A, Thornburg’s Connor Browne doubts the Senate will pass the House’s American Health Care Act (AHCA) in its current form, and is cautious that the status quo may even prevail. But if legislation does ultimately get signed into law, the impact on health care sub sectors will vary, with overall health system utilization likely to decline somewhat. That would impact stocks in a sector that has nearly tripled in total return since passage of the Affordable Care Act in 2010, substantially outperforming the S&P 500 Index’s roughly 150% gain in the period.

Q: Despite the well-known challenges of the Affordable Care Act—from failing state insurance exchanges and non-profit co-op health plans to annual double-digit health insurance premium increases to narrowing provider networks for patients shunted into Medicaid—health care stocks have actually had an excellent run since the ACA was passed in 2010, though the sector peaked two years ago and has been rangebound since. Assuming the Senate passes the House legislation without major changes, what’s the outlook for the sector now? Would you expect the American Health Care Act (AHCA) to result in less utilization of the health care system, and so less revenue for health care stocks in general?

Connor Browne: Yes, assuming the Senate passes the bill as is, I would expect slightly more uninsured and somewhat lower health care utilization. This would have the largest impact on the hospital sector where the publicly traded companies have both high fixed operational costs and lots of debt, but would also impact the rest of the sector, though to a lesser degree. All of that said, I think it is very unlikely the Republicans in the Senate pass the bill as it stands. There was even word that the Senate might start over and write its own from scratch. I continue to believe that the status quo is a reasonably likely scenario in health care and that it will be difficult to get Republican Senators and the conservative and moderate Republicans in the House to all agree on health care legislation.

S&P 500 Return Analysis 5/7/2010 - 5/4/2017

Source: Factset

Q: The medical device tax looks likely to be on the chopping block, which would presumably enhance investor interest in medical device makers. Insurers may be poised to enjoy more pricing flexibility and fewer mandates on their policy options, although they may also face greater industry competition if the AHCA works as planned. Although you’re a bottom-up investor, from a subsector perspective, where would you look for opportunities resulting from the legislation?

CB: We like to find companies that we believe are undervalued in many different possible future scenarios, including whether we get repeal of Obamacare or not. Medtronic is a great example. Given potential repeal of the medical device tax, the company could benefit. But that tax’s repeal is not our base case. We think the stock looks undervalued without that tailwind. There will be a lot to watch as the Senate spends the next few months debating the bill. How the bill evolves could have material impacts on different sub sectors, and keep in mind, nothing getting done remains a possibility.

Q: What about drug makers, which came under heavy criticism from both Donald Trump and Hillary Clinton during the election campaign. Are pharmaceutical companies still in the political cross-hairs?

CB: To me, this is just another example of how hard it is to get meaningful legislation done in the current political climate. There was some opportunity for Trump to come into his presidency looking to grab the middle of both parties and move forward on legislation that moderate Republicans and Democrats both agree on. That was not the path he chose. Given he needs to find the votes amongst only the Republicans with his current approach, it will be hard to get them all on board with legislation that would significantly change the way drugs are purchased by the government. It hasn’t even come up in legislation proposals so far!

Q: And provider network stocks such as hospital groups?

CB: Lower coverage could hurt the hospitals, whether because exchange options become more limited or because Obamacare repeal reduces funding for exchanges or Medicaid expansion. It will be interesting to watch how this group trades over the coming months. Regarding hospital investments, we’re on the sidelines for now.

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Charles Roth is global markets editor for Thornburg Investment Management. Prior to joining Thornburg in 2013, Charles was an assistant managing editor at Dow Jones Newswires, the Wall Street Journal’s real-time financial news and analysis division, where he oversaw its bureaus in Latin America as well as the New York–based emerging markets group. He had previously served as a senior writer in the emerging markets group, bureau chief in Venezuela, and staff reporter in Malaysia.

Charles earned BA degrees from the University of Colorado at Boulder and an MA from the Instituto Universitario de Desarrollo y Cooperación at the Universidad Complutense in Madrid, Spain. He was a Peace Corps volunteer in Mali.

Charles Roth is global markets editor for Thornburg Investment Management. Prior to joining Thornburg in 2013, Charles was an assistant managing editor at Dow Jones Newswires, the Wall Street Journal’s real-time financial news and analysis division, where he oversaw its bureaus in Latin America as well as the New York–based emerging markets group. He had previously served as a senior writer in the emerging markets group, bureau chief in Venezuela, and staff reporter in Malaysia.

Charles earned BA degrees from the University of Colorado at Boulder and an MA from the Instituto Universitario de Desarrollo y Cooperación at the Universidad Complutense in Madrid, Spain. He was a Peace Corps volunteer in Mali.

Danan Kirby is a portfolio specialist for Thornburg Investment Management. He works with Thornburg’s investment team and serves as a liaison for the team and key investment decision makers, communicating process and results of the firm’s investment strategies. Danan joined Thornburg in 2016.

Prior to Thornburg, Danan served as portfolio manager for the Strategic Growth Bancorp family of banks, managing various strategies for institutions and individual investors. Before that, he was a financial institution specialist with the FDIC. He is also a veteran of the U.S. Army. Danan graduated summa cum laude from the University of New Mexico’s Anderson School of Management with a BBA, concentrating in finance.

Charles Roth is global markets editor for Thornburg Investment Management. Prior to joining Thornburg in 2013, Charles was an assistant managing editor at Dow Jones Newswires, the Wall Street Journal’s real-time financial news and analysis division, where he oversaw its bureaus in Latin America as well as the New York–based emerging markets group. He had previously served as a senior writer in the emerging markets group, bureau chief in Venezuela, and staff reporter in Malaysia.

Charles earned BA degrees from the University of Colorado at Boulder and an MA from the Instituto Universitario de Desarrollo y Cooperación at the Universidad Complutense in Madrid, Spain. He was a Peace Corps volunteer in Mali.

Stephen Jimenez is a client portfolio manager for Thornburg Investment Management. He focuses on Thornburg’s liquid alternative strategy and serves as a liaison between the investment team and clients.

Prior to joining Thornburg, Stephen was a salesperson at III Capital Management, a $4 billion hedge fund management company focused on rates and credit strategies. He also held various positions in the alternative asset management industry, including Coast Investment Management, a $7 billion fund of hedge funds. His roles included global product specialist and hedge fund analyst, focused on fixed income relative value strategies. Earlier in his career he was a U.S. Treasuries market maker and arbitrageur at major Wall Street firms, including Bank of America and UBS.

Stephen attended the University of Washington, where he graduated with a BA in economics. He is currently registered with FINRA with a Series 7 and 66.

Charles Roth is global markets editor for Thornburg Investment Management. Prior to joining Thornburg in 2013, Charles was an assistant managing editor at Dow Jones Newswires, the Wall Street Journal’s real-time financial news and analysis division, where he oversaw its bureaus in Latin America as well as the New York–based emerging markets group. He had previously served as a senior writer in the emerging markets group, bureau chief in Venezuela, and staff reporter in Malaysia.

Charles earned BA degrees from the University of Colorado at Boulder and an MA from the Instituto Universitario de Desarrollo y Cooperación at the Universidad Complutense in Madrid, Spain. He was a Peace Corps volunteer in Mali.

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Danan Kirby is a portfolio specialist for Thornburg Investment Management. He works with Thornburg’s investment team and serves as a liaison for the team and key investment decision makers, communicating process and results of the firm’s investment strategies. Danan joined Thornburg in 2016.

Prior to Thornburg, Danan served as portfolio manager for the Strategic Growth Bancorp family of banks, managing various strategies for institutions and individual investors. Before that, he was a financial institution specialist with the FDIC. He is also a veteran of the U.S. Army. Danan graduated summa cum laude from the University of New Mexico’s Anderson School of Management with a BBA, concentrating in finance.

Stephen Jimenez is a client portfolio manager for Thornburg Investment Management. He focuses on Thornburg’s liquid alternative strategy and serves as a liaison between the investment team and clients.

Prior to joining Thornburg, Stephen was a salesperson at III Capital Management, a $4 billion hedge fund management company focused on rates and credit strategies. He also held various positions in the alternative asset management industry, including Coast Investment Management, a $7 billion fund of hedge funds. His roles included global product specialist and hedge fund analyst, focused on fixed income relative value strategies. Earlier in his career he was a U.S. Treasuries market maker and arbitrageur at major Wall Street firms, including Bank of America and UBS.

Stephen attended the University of Washington, where he graduated with a BA in economics. He is currently registered with FINRA with a Series 7 and 66.

Charles Roth is global markets editor for Thornburg Investment Management. Prior to joining Thornburg in 2013, Charles was an assistant managing editor at Dow Jones Newswires, the Wall Street Journal’s real-time financial news and analysis division, where he oversaw its bureaus in Latin America as well as the New York–based emerging markets group. He had previously served as a senior writer in the emerging markets group, bureau chief in Venezuela, and staff reporter in Malaysia.

Charles earned BA degrees from the University of Colorado at Boulder and an MA from the Instituto Universitario de Desarrollo y Cooperación at the Universidad Complutense in Madrid, Spain. He was a Peace Corps volunteer in Mali.

Charlie Wilson is portfolio manager for Thornburg Investment Management. He joined the firm in 2012 as ­associate portfolio ­manager and was promoted to portfolio manager in 2014.

Charlie earned a BS in geology from the University of Arizona in Tucson and a PhD in geophysics from the University of Colorado in Boulder. Prior to joining Thornburg, Charlie served as co-portfolio manager for Marsico Capital Management in Denver, Colorado. He was responsible for portfolio investments across multiple strategies and geographies, with specialization in materials, energy, technology, and payments sectors.

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